The Economic Times of India is reporting Tata has teamed up with German engineering firm FEV (who's also developing the hybrid system on the Mahindra Scorpio) to bring an 800 cc, turbocharged, two-cylinder diesel to the engine bay of the Tata Nano. Already blessed with a $2500 price tag and rumored to have a compressed air engine on the way, the story of the Nano just keeps getting more and more interesting.

If the 2008 Tata Nano is as dramatic as its unveil would have you believe, it will soon be learning …
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News of a diesel option isn't really that earth shattering, as Ratan Tata, the man himself, has been quoted saying, "By and large we've always been a diesel company, so we will have a diesel version that will follow." This new diesel variant would be the smallest and most fuel-efficient offering in the Indian marketplace. Not only that, but the 0.8-liter mill dwarfs the standard 623 cc gas engine, and would probably make the Nano D the standout performance leader in the range — though more than likely the priciest offering as well. Is there something wrong with us if we really, really want three Nanos with different powerplants so we can race down the main drag, Shriner-style? [Economic Time]